The analysis of the impact of central environmental protection inspection (CEPI) on corporate environmental, social, and governance（ESG) performance is important for reforming the operation mechanism of CEPI to improve its effectiveness and fundamentally enhance corporate ESG to achieve sustainable development. This paper empirically examines the mechanism of the impact of CEPI on corporate ESG performance using a multi‐period difference‐in‐differences (DID) model with a research sample of 674 listed firms in China from 2013 to 2018. The results show that CEPI can significantly improve corporate ESG performance, and the strengthening of regulation by local governments is a potential channel. The important internal governance mechanisms of foreign and institutional investor shareholding, as well as the external governance mechanisms of analyst following and media coverage, can effectively strengthen the improvement effects. Further analysis also reveals that there are differences in the effectiveness of different inspection approaches, with “look‐back” inspection outperforming routine inspection. Heterogeneity at the firm and regional levels is also a critical factor in causing differences in the effectiveness of ESG performance improvements. This work not only enriches the research on the micro‐effects of CEPI on firms but also provides a reference for firms to improve their ESG performance and use ESG for investment and business decisions.

The environmental tax reform implemented in 2018 is an important initiative of Chinese tax reform, which is deemed a valuable opportunity to encourage firms to improve their environmental performance. This study empirically investigates the impact of the environmental tax reform on corporate environmental performance based on data from Chinese A-share listed firms with heavy pollution from 2016 to 2020 by the differences-in-differences method. It is found that the environmental tax reform can effectively improve corporate environmental performance, and the environmental supervision of local governments is an important channel to realize this. Heterogeneity tests show that the environmental tax reform better impacts the corporate environmental performance of non-state-owned enterprises and firms in western areas. This paper enriches the application scenarios of institutional theory, provides micro evidence for the impact of implementing the Environmental Protection Tax, and provides a decision-making basis for strengthening the environmental supervision of local governments, which has practical guidance significance in forcing corporations to modernize their green technology and realize sustainable economic growth.